AQMD Vote May Reshape Southland Clean Air Fight : Smog: A trading market in pollution rights would replace many of the agency's regulations.

By JUDY PASTERNAK

March 5, 1992 12 AM PT

TIMES STAFF WRITER

The South Coast Air Quality Management District will consider a radical change in course today in its fight against smog when it decides whether to replace many of the agency’s regulations with a revolutionary trading market in pollution rights.

Ostensibly, the decision the board faces is whether to allow the staff to spend the next year designing the trading program. But making a commitment of so much time and effort, says AQMD Executive Officer James M. Lents, will be tantamount to a go-ahead on the market itself.

Most rule-making, in effect, would be put on hold, so if no market were put into place the agency would be well behind schedule in its drive to clean the air by the year 2010.

The decision--which will be monitored by entities as disparate as the Coalition for Clean Air in Venice and the Chicago Board of Trade--follows six weeks of intense lobbying that began after the AQMD staff formally recommended a “smog exchange.”

At the time, AQMD board member Larry L. Berg forecast a “period of indigestion” as various interests jockeyed to change the details in the proposal that will be put before the board today.

Berg was right. New qualms have been raised and unlikely alliances have been forged. The shape of the proposed “smog exchange” has expanded, mostly in an attempt to shore up support. But several of the recent changes have raised hackles.

In theory, a market would provide financial incentives to clean the air faster than the current regulatory system, while allowing industry enough flexibility to save hundreds of millions of dollars. If it fails in practice, however, the nation’s dirtiest air could get far dirtier.

Environmentalists, large industries, a coalition of small businesses and labor all endorse the concept, a stunning consensus in light of the arguments that mere mention of a market provoked a year ago.

But in the details, winners and losers are made. So debate continues over points that are far from minor technicalities: which polluters should be allowed to trade, for example, and when trading should begin.

“There are some major decisions on the nature of the program that will be made (today),” said Joel Schwartz, staff scientist for the clean-air coalition. “This vote could set something in stone for the market. We’re very concerned about some of those parameters.”

If board members agree to go ahead, as expected, the staff has promised to have a detailed plan ready for their consideration in early 1993. The “smog exchange” could begin by 1994.

But the state Air Resources Board, which also must approve the program, and environmental groups would like to see a slower process, at least for pollutants known as hydrocarbons. Hydrocarbons often reach the air through leaks and seepage, and critics would like to see the AQMD first improve its monitoring of such pollution. Even some oil industry sources voiced similar concerns.

Lents, however, thinks the track could be even faster. He said this week that he expects trading to be well under way in the spring of 1993.

Faced with that possibility, environmental activists, business attorneys, AQMD board members and trade groups have been sitting down together at breakfasts and furiously trading faxes.

“It’s strange, but environmentalists and business have discovered that we had more in common than we thought,” said Mary Nichols, senior attorney for the Natural Resources Defense Council.

The staff’s original proposal envisioned two separate markets, one in nitrogen oxides and one in hydrocarbons. The two interact in sunlight to form ozone, the powerful lung irritant that is the major component of urban smog. The area violates federal standards for ozone nearly six months a year.

Only facilities in Los Angeles, Orange, San Bernardino and Riverside counties that emit four tons or more of either would be eligible to participate in a market. About 2,000 of these large-scale polluters are responsible for 85% of the region’s industrial hydrocarbon emissions and about 700 facilities generate 95% of the nitrogen oxides.

Polluters in the market would be issued a share of overall emissions, based on their past production. Over the first 10 years of the program, the value of each share would decline by 5.8% annually for hydrocarbons and by 8% for nitrogen oxides, forcing a cleanup.

Participants could meet their reduction quotas any way they chose, by coming up with cleaner methods, shutting down operations or by buying credits from a business that had some to spare. They would no longer be subject to about 40 existing or proposed AQMD rules that specify certain equipment or methods to reduce pollutants.

Environmentalists, and coalitions of both small and large businesses would like to see even smaller polluters, which are not now heavily regulated, in the marketplace. Smaller businesses are seen as likely sellers of credits to large manufacturers and refiners.

Since January, the staff added a recommendation for a third market, for about 100 emitters of sulfur oxides, the stuff of acid rain, acid fog and some of the fine dust in the region that obscures views and carries toxic particles deep into the lungs. The Los Angeles area already meets federal standards for sulfur oxides, though not for the fine dust, so “it’s obviously less of a gamble,” said Robert A. Wyman, attorney for several large businesses.

The sulfur oxides market is expected to most help refineries, which would otherwise be the target of strict controls scheduled for enactment in the fall.

There are other changes in the proposal as well:

* A new role is being assigned to suppliers of paints and solvents, who would have to cooperate in providing information to the AQMD about who buys polluting products. Paint fumes are a major source of hydrocarbons. Vendors of such coatings to businesses participating in the market would be required to install a $300 computer that transmits purchase records to the agency.

But environmentalists say they are not convinced the complicated system would work. As for vendors, “they’re going to go bonkers” when they hear about it, Lents predicted. Indeed, Ed Laird, a paint merchant who also chairs the group of small businesses interested in the market, reacted angrily. “It sounds like Big Brother to me,” he said. “It would make life very difficult.”

* Lents said he is committed to finding a way for companies to earn pollution rights to trade by buying old, high-polluting cars and scrapping them. The emissions credits, Lents said, would probably have to be temporary because old cars would eventually stop running anyway. But environmentalists are wary, noting that some old cars do not pollute as much as others--and some new cars with disconnected smog controls are even higher polluters.

* Power plants have been made eligible for the market in the proposal, despite the reservations of some who think a tight nitrogen oxides regulation passed last year after a long and thorny debate should stay in place. Said Wyman: “There’s no reason for them to be out, other than emotional.”